Denver Homes - Insurance

Insurance, like property taxes, is normally collected by the lender in an escrow account. Insurance offers financial protection, and has three major components:

1) Homeowner's insurance, also called hazard insurance, protects you against damage to your property caused by fire, wind, or other hazards.

2) Mortgage insurance protects your lender in the event that you fail to repay your mortgage. Whether you must pay mortgage insurance usually depends on the loan program and the size of your down payment.

3) Personal Contents / Renters insurance, if your are purchasing an attached unit property (condo, townhome, etc.) your Homeowners Policy will be included in your HOA payment. This will be a master policy insuring all of the units. Typically, these types of policies only insure the replacement cost of the structure and not the personal property within it. A separate policy will be needed to insure your personal belongings. Policies are typically inexpensive.

What is PMI and why is it required?
Private mortgage insurance (PMI) is insurance written by a private company that protects the lender from losses in the event the borrower defaults on the mortgage. Borrowers are required to pay the premium for private mortgage insurance. Private mortgage insurance limits a lender's exposure to financial loss resulting from loan default. If you make a down payment of less than 20%, even if you have a good credit profile, lenders generally, require private mortgage insurance.

What is the minimum down payment required by a lender in order to eliminate PMI?Typically, on a primary residence, the minimum that you need to put down to eliminate PMI is 20%. If you are putting less than this down, but wish to avoid PMI, your lender may have alternative products and pricing options, they may provide in lieu of PMI.

How long will I be required to have PMI on my loan?
The Homeowner's Protection Act of 1998 allows borrowers whose loans originated after July 29, 1999, to request cancellation of PMI at 80% loan to value (LTV) based on amortization or actual payments if the borrower has a good payment history, if the borrower provides evidence the property value has not decreased, and certifies there are no subordinate liens on the property. Lenders are required to terminate borrower paid PMI at 78% LTV based on the amortization schedule if the loan is current. If none of the above is done, PMI will terminate automatically at the midpoint of the loan term.

How much does mortgage insurance cost?
The cost of PMI is divided into two parts. The first part is a payment made at the time of closing. The second is an ongoing payment made each month with your principal and interest payment.

Do lenders provide any alternative to mortgage insurance?
You definitely have options. Explore mortgage insurance alternatives with your lender.